Abstract

Re-investment is vital to the business angel "industry" because re-investing angels endorse a greater number of entrepreneurs and invest more funds than non-reinvesting angels. In this exploratory empirical analysis, the appraisal qualities of business angels are examined relative to their impact on producing successful investments as well as their impact upon re-investment. The three appraisal qualities investigated are business angels' motivations, their deal generation behaviours and the cognitive heuristics of overconfidence and representativeness. The analysis is based on the information model of the existence of the formal venture capital industry.

A typology of business angels is introduced based on 1) their intentions to re-invest and 2) their exit status at re-investment. Business angels who have re-invested are classified as habitual angels. A novel data set reveals information about angels' first to fourth investments that allows for comparability between novice and habitual angels' first investments. The data set is randomly sampled from a known population of newly incorporated firms on the east coast of Canada producing a more representative sample than other business angel studies. Six in-depth case studies add to the findings.

The findings indicate that financial motivations, intermediated deal generation and under-confidence are associated with financially successful informal venture capital investments. However, compared to novice angels, the representative sample of habitual angels eschew financial motivations and intermediation, and are characterised by overconfidence at the level of their first investment. Habitual angels demonstrate some qualities that indicate they learn with subsequent investments. Implications for policy makers, business angels and entrepreneurs are included.